Sometimes, you need a pick-me-up, whether it is that cup of coffee in the morning or an energy boost later in the day. You just need something to get you going. Stocks are not much different. They need a reason to get going as well. In the marketplace, we call these reasons catalysts. Today, I'm going to look at five names that have major upcoming catalysts, during the next few months, that could mean large moves for these stocks.
I covered the upcoming launch of Apple's new iPhone(s) in my latest Apple article quite extensively. This launch is a huge catalyst in itself, which is why I devoted an entire article to it. Apple is expected to launch a new iPhone and a cheaper iPhone this week. Apple is also expected to get a major Japanese carrier on board, and potentially release phones in China at the same time (as opposed to the multi-month delay we saw in the past). This is all big news, but I've covered it all already, so it is not the catalyst I am referring to today, but it forms part of the basis for my argument.
The catalyst I am referring to, and discussed briefly in the article as being unclear just a few days ago, is obviously the much anticipated deal with China Mobile (CHL). The Wall Street Journal, just hours after my article was published, reported that Apple is expected to ship iPhones to China Mobile. This is the second deal that could be struck, in addition to one with NTT DoCoMo. DoCoMo has more than 60 million subs, that are generally higher revenue subs, meaning they can afford a higher priced phone. China Mobile has an estimated 740 million subs, but they are much lower revenue subs. So it makes sense that the WSJ is reporting Apple will ship the 5C (the cheaper phone) to China Mobile, but it is unclear if they will get the 5 or 5S (the new regular phone) anytime soon. The report also states that China Mobile sales could take longer to start, as regulators need to vet an iPhone supporting the carrier's TD-LTE 4G network. So while a deal could be announced this week, China Mobile may not have the late September release that we could see with some of the other carriers in China.
A China Mobile deal, even a smaller one at first just including the 5C, would be huge for Apple. It would result in something we have not seen lately, and that is rising analyst estimates. Apple's estimates have been coming down for more than a year now, and I detailed in my above article how current estimates were at new lows. Well, as of Sunday, estimates have gone even lower. Here are the changes in just the past few days:
- Fiscal Q4 2013 (the current quarter) revenue estimate cut from $35.96 billion to $35.92 billion. Last year's period saw $35.97 billion. That means that analysts are now starting to expect a decline in year-over-year revenues. EPS estimates for the quarter have also been cut by a penny to $7.61.
- Fiscal 2013 (ending September 2013) revenue estimate cut from $169.44 billion to $169.40 billion, and EPS cut by 2 cents to $39.08, just a few cents above the recent low point.
- Fiscal 2014 (ending September 2014) revenue estimate cut from $180.52 billion to $180.51 billion. EPS numbers cut by 3 cents to $42.32.
I know these are relatively small changes, but we're only talking about these changes happening since Thursday. When you get cuts like this every couple of days, they add up over a period of weeks or months. I've been detailing that fact in many articles over the past year. The point here is that a China Mobile deal, a DoCoMo deal, or any other positive news could actually spark a turn in estimates. That's something we have not seen recently.
Deckers Outdoor (DECK):
Would a cold winter for the retailer that brings you the UGG line be a major catalyst? It certainly would be. Farmers' Almanac is predicting a below average temperature winter, with many areas of the US seeing piercing cold conditions and decent precipitation (mostly snow). The Northeast has already felt some fall-like weather.
When Deckers announced second quarter results, the company guided to a small increase in revenues during Q3, with a huge drop in earnings thanks to extra operating expenses incurred from greatly increasing its store count in recent years. It also guided to a huge fourth quarter, with a double-digit jump in revenues and an earnings per share increase of almost 40%. Now it did guide to a huge second half last year, then guided to a huge Q4, and neither came true, so its credibility has been hurt a bit.
Deckers just launched a new media campaign, again featuring New England Patriots and NFL Superstar QB Tom Brady. The company is trying to decrease its reliance on the UGG brand as well as sheepskin costs, and the beginning of those efforts will start to be felt this fall. Sheepskin prices have come down, and Deckers is also expanding its line with UGG Pure. Deckers has reduced its share count by more than 10.4% in the past two years, and it still had roughly $80 million on its current buyback plan at the end of Q2. Deckers is a very profitable business that generates a lot of cash, even though net income levels are still well below 2011 highs. With a cold winter providing decent sales opportunities, the company could produce enough cash to start a new buyback program or make a decent size acquisition to further bolster revenue growth.
The biotech name behind Provenge has been one of the biggest roller coaster stocks in recent years. I've been negative on the name since the mid teens a few years ago, and that call has been spot on. Provenge sales have been very disappointing, especially in 2013, and the company has been unable to improve its cost structure. That has led to a continuation of large losses, and a tremendous burn in cash. I made my case recently as to why Dendreon's window of opportunity may have closed.
However, I also presented two items which could derail the short case, one of which is the catalyst that makes today's list. The following two quotes are from its second quarter conference call:
We are in discussion with potential partners and are prioritizing our plans for launch in Europe.
We continue to enroll patients in the EU open label study and plan to have a presence at the European Cancer Organization, ECO and European Society for Medical Oncology, ESMO conference. The regulatory process is ongoing. We believe this will receive a final regulatory decision by the European commission in the second half of this year.
A final regulatory decision was expected during the middle of 2013 but has been delayed. The regulatory decision in Europe could come any day now, and Dendreon bulls are hoping this will be the item that turns around this stock. Dendreon shares are down more than 45% year to date and recently hit a new multi-year low. The latest fall came after the company's terrible second quarter and disappointing guidance (and lack thereof), which I covered extensively in the article above.
A positive regulatory decision out of Europe could be the key for a turnaround in shares. Roughly one-third of Dendreon's outstanding share count is short, so any positive news could lead to a massive short squeeze. However, one must take the news in stride. It is unclear at this point who Dendreon will partner with in Europe. We also don't know how soon it could launch Provenge, when or where sales would be generated, or how long it would take to be profitable. Until then, Dendreon will continue to lose large sums of money, burn through cash, and get closer to a potential bankruptcy. The company has a ton of debt, some of which is due in 2014, and negative shareholder equity. You might also see it sell equity at some point, which could itself be another catalyst for the name.
Since a lot of my writing involves earnings analysis, I'd let down my readers a bit if I didn't provide one name where an upcoming earnings report is a potential catalyst. The Canadian apparel retailer will report earnings this Thursday, September 12th, before the bell.
This will be a very interesting earnings report for a couple of reasons. First, the company had a tough spring when it recalled a bunch of pants due to them being too see-through. The company was mocked in both financial and news media, and the stock was crushed. Shares recovered, like I said they would, and results were not as bad as they could have been.
But shares plummeted again at last quarter's earnings report when CEO Christine Day announced she was leaving the company. Despite results and guidance being fine, Wall Street seemed to focus on the CEO news instead. Shares fell from the low $80s to the low $60s. This stock has bounced between those two levels like a ping-pong ball since the start of 2012. Again, I stated investors should not panic, and shares have recovered, now back around $70.
For the quarter, analysts are looking for revenues of $343.10 million, slightly above the midpoint of the company's guidance for $340 to $345 million. The average earnings per share estimate is $0.35, the high end of the company's $0.33 to $0.35 guidance range. For the next fiscal quarter, when it comes to the guidance the company will provide, analysts are looking for $389.83 million in revenues and $0.45 in earnings per share.
So the earnings announcement is a catalyst, but there is another potential catalyst here as well. The company could use the earnings report to announce a new CEO, if it has finished its search process. The market's reaction to this decision will obviously depend on who the new leader will be, but at least the naming of a new CEO should help ease some of the concerns that have been held over this stock recently.
Philip Morris (PM):
The cigarette giant has a different kind of catalyst upcoming. On or around September 11th, the company is expected to declare its quarterly dividend, which is expected to be a raise. The company is currently paying $0.85 per quarter, or $3.40 per year, which represents a 4.04% yield as of Friday's close. In my above linked dividend article, I provided my own opinion for a raise to somewhere between $0.90 and $0.93 per quarter. That would represent an increase of between 5.88% and 9.41%.
Philip Morris has been a value investor's dream since its spinoff a few years ago, thanks to a decent dividend and large stock buyback plan. However, recent sales slumps due to shipment volumes and currency issues, along with a concern over the increasing debt pile, has pushed the name lower. Philip Morris shares are just about $2 from their 52-week low, and they are the worst performing in 2013 among the big four cigarette names that I cover (including Altria (MO), Lorillard (LO), and Reynolds American (RAI)). Philip Morris needs a catalyst to get going, and a nice dividend raise could do the trick.
All five of these names have major potential catalysts in the near future. Apple's large product launches, along with a potential China Mobile deal, could spark the tech giant. Deckers is looking for a cold winter to help spark sales growth. Dendreon is looking for a positive European decision on Provenge. Canadian apparel retailer lululemon reports earnings this week, and could potentially name a new CEO. Philip Morris is expected to raise its dividend this week. All five of these names will be ones to watch over the next couple of weeks.
Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.